Chinese Threat To Bitcoin: Reality?
For the past ten years, Bitcoin has done a lot to influence the world of finances and countless other sectors. It has presented the entire world with the new concept of decentralized money which does not depend on any bank or government. In doing so, it has created its own adversaries, one of which might potentially be the entire country of China.
Is China a threat to Bitcoin?
China has already demonstrated the ability to influence Bitcoin, but it can also threaten its stability, security, and viability. Bitcoin has become increasingly popular over the course of the last decade, even reaching the market cap of over $100 billion. Numerous analysts around the globe believe that the coin will go even further, despite the calm period which it has entered now.
Despite the fact that there are several problems with Bitcoin, many of which were already demonstrated in theory, none of them has appeared as a part of a real situation yet. This is because the coin doesn't only depend on the mechanisms of its cryptography, but on political and socioeconomic forces. Simply put, Bitcoin has no bank, government, or company to take care of it. Instead, it is miners' job to provide maintenance and keep the system going.
Since crypto mining provides a reward and can be quite profitable, many have joined this industry in the past decade. So many, in fact, that mining Bitcoin on their own became impossible. Thus, they were organized in mining pools, where participants provide only a part of their computing power and receive only a fraction of a reward in return.
The problem lies in the fact that five out of six mining pools are in China, a country known for controlling economic and financial activity, as well as for heavy surveillance and censorship. While this doesn't grant China a direct control over mining pools, it is still possible for the country to influence them in negative ways.
China's influence on BTC
Soon after its creation, Bitcoin spread across the world, and it started becoming big in China in 2013. Exchanges began appearing in this country, and mining pools followed. The country's government and regulators remained uninterested in the cryptocurrency until firm regulations were brought in 2017, preventing ICOs and frowning upon Bitcoin and crypto in general.
China is known for having strict and sometimes even harsh regulations. It is also known for online and offline surveillance, as well as Internet tampering, censorship, content filtering, deep packet inspection, and more. This is a problem because over 74% of hash power of the Bitcoin network comes from mining pools located in China. The country cannot control the pools directly, but those operating them are still living in China and might be influenced by the authorities. In other words, while the country doesn't control the technology, it can control people operating it.
Due to the Great Firewall of China, the country can have a big impact on Internet-based processes, and it has the ability to block whatever it wishes, which might be used for interfering with Bitcoin as well. However, it is also possible for the country to sabotage Bitcoin through constant attacks — whether for making an ideological statement, for the purpose of law enforcement, in order to get more control or to gain influence in countries that are more Bitcoin-friendly and where the coin can be used.
These attacks may differ in a lot of aspects, with some of them being delicate and discrete, while others can be easily detectable. They can target miners, BTC users, or maybe even the entire ecosystem. This can go from censorship to 51% attacks and many different kinds of attacks in between. Furthermore, the country might use deanonymization techniques to reveal identities of Bitcoin traders. There are several reasons for this, from enforcing laws to ideological or political reasons, but whatever the reason is, it might endanger the traders' privacy.
While the country can cause damage to Bitcoin through its users and miners, there is also a possibility that it can start a chain of events which might lead to double-spend attacks, Finney attacks, brute force attacks, and many other. All of this may lead to Bitcoin destabilization and sudden changes in BTC value, which are already present because of large volatility. In other words, China has the ability to affect the entire world by influencing Bitcoin alone. The situation may become even worse in a while when Bitcoin enters the mainstream and experiences mass adoption and acceptance.